A Senate Finance subcommittee yesterday began -- and immediately backed away from -- hearings on whether to repeal a controversial provision in the 1976 Tax Reform Act that would increase the taxes paid by heirs on the sale of inherited property.
Subcommittee chairman Harry F. Byrd Jr. (Ind-Va.) abruptly conceled the sessions a few hours after the opening, ostensibly because the Treasury did not submit detailed legislation on how to alter the 1976 provision. Byrd asserted the panel could not act without such a plan.
However, knowledgeable sources said Byrd never asked the department to draft specific legislation and said the Virginia senator merely was looking for a way to cancel this round of hearings after the Treasury unexpectedly dug up too many supporting witnesses.
The latest tiff appeared to do little to ease the bitterness in the longstanding dispute between Byrd and the administration, which has raged almost since the day the 1976 legislation was passed. The two sides have been at loggerheads over the issue.
Carter has renewed his commitment to try to persuade Congress to make the 1976 provision -- with some modifications -- stick as a permanent part of the tax code. At the same time, Byrd and several other conservatives on the panel have made it clear they would like to repeal it.
The 1976 provision, which was billed then as a major element in that year's "tax reform" act, was designed to close a so-called "loophole" under which wealthy persons were escaping payment of most taxes on inherited stock, real estate or other property.
Because of some drafting problems in the 1976 law, all sides concede that some changes are needed. The Treasury submitted a plan last year that would in effect confine any serious tax increase to the wealthiest 2 percent of the nation's estates.
Since then, however, Congress -- largely as a result of Byrd's efforts -- has suspended the 1976 provision and effectively shelved it at least through 1980. Most observers believe if the lawmakers were to defer it again, it would be to repeal the provision entirely.
At issue is whether the taxes paid by heirs on the profits from the sale of inherited property should be based on the profit since the previous owner first purchased the asset or the gains since the previous owner died. On some estates, that could mean several thousand dollars.
The administration has been trying to proffer its case on grounds of "equity," but has been vigorously opposed by lawyers, bankers, accountants and conservative groups, who claim that even with the modifications, the law is too complex to administer.
Yesterday, the Treasury sought to separate the two issues, with Assistant Secretary Donald C. Lubick arguing the complexity alone did not justify repealing the law. Lubick noted that many sections of the tax code are complex, especially where large sums are involved.
Lubick was joined by Thomas Field, director of Taxation With Representation, a liberal "tax reform" group, who asked the subcommittee, "How can we justify a zero rate of taxation on gains from inherited assets when ordinary wages are taxed at rates up to 50 percent?"
However, Field and another proponent of the 1976 law, Robert S. McIntyre of the Tax Reform Research Group, were countered by a panel of tax lawyers who contended the Treasury's sought-after compromise would be "unworkable." There was no indication when hearings would resume.